No spring bloom for ASX Ltd

ASX released its monthly activity report for September, with several interesting admissions.

- Equities turnover value lower as competition increases

- Option volumes slide on lower volatility

- Support: 32.65 Resistance 1: $36.15 Resistance 2: $37.96

While the ASX 200 rose 1.6% in September (was as much as 3.51%), the average equities turnover over the 30-day period was only $4.2 billion per day with is 3% lower than the average value in August and 4% lower on the same month last year. Equities revenue is being hit by high frequency trading and lower market trade value which is leading to lower commission trades rather than volumes of trades.  

Equity values are also being hit by increased completion from Chi-X with saw its market share up 1% month-on-month in September to 14% of trades done.

This news will be earnings-per-share sensitive. Goldman Sachs sees this trading fall taking about 2% out of FY14 EPS numbers, which is marginal but negative all the same as equity turnover makes up approximately 18.5% of operating revenue.

The other effect the rise in the ASX 200 is having on trade for ASX is exchange trade options (ETO) are down 20% year-on-year as volatility falls. The inverse correlation between the market and the XVI (volatility index) is strong as solid growth in the ASX 200 has the inverse effect on the XVI.

For option traders to see value in these derivatives the VXI will need to rise to see premium value returning before trade values return which is a concern; however ETO only make up 5% of operating revenue.

The bright spot is futures and forward contract volumes were up 10% on the same time last year, with year-to-date growth at 14%. Considering 27% of operating turnover comes from this market it should anchor the ASX’s revenue. However, the margins in these products are not as strong as equities or ETOs.

Trading ranges in ASX are fair-ranged bound with the stock only touching the 50% retracement of the 2007 high to the 2009 low once in 2011.

The range is even stronger between the 23% retracement at $32.65 and the 38% retracement of $37.96. We see a top being made at $36.15 and could be another inflection point, which coupled with this soft trading up date may see a slight bearish trade in the stock in the short term. 


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